Capital One to acquire Discover in all-stock transaction valued at $35.3B

Capital One Financial (COF) and Discover Financial Services (DFS) announced that they have entered into a definitive agreement under which Capital One will acquire Discover in an all-stock transaction valued at $35.3B. Under the terms of the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, representing a premium of 26.6% based on Discover’s closing price of $110.49 on February 16, 2024. At close, Capital One shareholders will own approximately 60% and Discover shareholders will own approximately 40% of the combined company. The transaction is expected to generate expense synergies of $1.5B in 2027, driven by common business functions partially offset by targeted investments in the Discover network. The acquisition is expected to generate network synergies of $1.2B in 2027, driven by adding Capital One debit purchase volume and selected credit card purchase volume to the Discover network. The deal is expected to be more than 15% accretive to adjusted non-GAAP EPS in 2027. The transaction is expected to deliver return on invested capital of 16% in 2027, with an internal rate of return in excess of 20%. On a pro forma basis, the combined company would have a CET1 ratio of approximately 14% at closing, and 84% of company deposits would be insured as of year-end 2023. The transaction is expected to close in late 2024 or early 2025, subject to satisfaction of customary closing conditions, including regulatory approvals and approval by the shareholders of each company.